The rupee bond issuance frenzy that saw volumes in the corporate market nearly double in five years is poised to fade in 2018, after a government plan for additional borrowing sent company yields to 16-month highs.

HDFC Bank and Trust Group see only single-digit growth in volumes this year after four straight years of double-digit growth that was supported by an accommodative monetary policy. ICICI Securities Primary Dealership expects Indian companies to sell about Rs 6 lakh crore ($94.4 billion) of local-currency bonds this year, lower than the record Rs 6.4 lakh crore of notes issued in 2017.

“At these rates, companies may not opt to borrow from bonds and I expect coming quarters to be less busier than previous as there will be some crowding out due to extra government borrowing,” said Sandeep Bagla, associate director at Trust Group in Mumbai.

Bagla sees companies either choosing loans or tapping overseas markets to meet their funding needs. The average yield on AAA-rated three year corporate notes rose 40 basis points last year, snapping three straight years of declines, according to data compiled by Bloomberg. That’s just 41 basis points less than three-year lending rate of 8.1 per cent at State Bank of India. This gap was as wide as 186 basis points at the start of 2017. The yield on top rated three-year bonds was at 7.68 per cent on Tuesday, after touching a 16-month high of 7.73 per cent on Dec 28.

Two opposing factors will come into play this year, according to Sharad Rungta, head of debt capital market and debt syndication at HDFC Bank, the second-biggest arranger for rupee bonds last year. Narrowing yield gap between bonds and loans, may prompt companies to choose bank lending, Rungta said, while expectation that interest rates are on a rise may lure borrowers to lock in rates through bonds rather than choose loans that tend to have a floating rate.

Goldman Sachs Group expects the RBI to lift rates three times by mid-2019 while the market is pricing in only about one increase this year as shown by local swap rates as inflationary pressures build in Asia’s No. 3 economy and growth recovers from a cash ban and the introduction of a unified goods and services tax.

Rungta sees demand for bond offerings to be hit in a rising interest rate scenario as inflows to mutual funds debt plans may taper and reduced liquidity in the banking system leaves lenders with less funds to buy bonds.

Axis Bank, however, expects issuance to cross Rs 7 lakh crore this year as refinancing of upcoming maturities and preference of large corporates for bonds due to rules that restrict the amount they can borrow from banks will drive sales higher.

“I do not see any possibility of 2018 bond volume lower than 2017,” said Shashi Kant Rathi, executive vice president and head of treasury and markets at Axis Bank. “There may be some impact on bond sales this quarter due to government’s additional borrowing, but this will be compensated for in the subsequent quarters.”

Other bond arrangers weren’t that optimistic on issuance, given fiscal and monetary headwinds.

“Competitive loans rates, tightening banking liquidity and increasing risks of an end to accommodative monetary policy will be a dampener for bond sales this year,” said Shameek Ray, head of debt capital markets at ICICI Securities Primary Dealership. “I see zero growth in issuance.”